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Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

I think the rise of the dollar although a sexy thing for us to watch and be proud of, it's acually a worrying sign of a problem, because given the current picture it's no more than a figurehead of an undercurrent american slide to deflation;
The difference between life and death is a beating heart, and in our system this heart is banks, which was a no brainer for pragmatic Obama when he saved them in his is first years, the problem is that that was a different horror movie about an emergency scare five years ago.
Here's the catch22: we would have been right about the pure virtue and miracle of this dollar prowess, if it was in a world were the American public has enough money to create demand that would have constituted a fundamental economic strength, and by extension a world public that is buying American goods, if the dollar rises in spite of all that it's a deserved validation! not the case;
in fact the revaluation of the dollar was quite predictable, with the Fed cutting the easing, repeated fiscal spending cuts, stagnant wages. and tax cuts.
With corporate profits hitting historic highs, (even though mostly thanks to mother monetary buble) I don't anderstanding why some smart people still insist the solution is just to make it even easier for bussiness and international trade to feel even better!
This leads me finally to the puzzling win of the republicans last midterms, the fact that all time high profits didn't trickle down, more over, the fact that previous eras with much less profits witnessed an across the board prosperity should have been a fatal exposure to republicans ..

The article missed 3 points:
1. The US started the currency wars in the 1990s under Clinton/Greenspan with far too low interest rates, creating all kinds of bubbles, a new kind of hedge fund oligarchs, and shoveling wealth from savers and middle class into the pockets of speculators and asset owners.
2. Today, the US can't increase interest rates any more, simply because they can't afford to pay the resulting interest on their exploded debt.
3. The US is now an oligarchy and there is no interest to restore democracy or to fix the transfer system into the pockets of the oligarchs.

The reality is not so much one of currency war as global oligarchic currency conspiracy. Central banks have a common interest in protecting stable wealth transfer flows (from tax cattle to oligarchs). That means avoiding the debt destruction required by economic cycling. Funding this distortion requires the use of inflation as a stealth tax. To meet their price stability mandates, nominal inflation must be low, while real inflation is high. Hence, global coordinated devaluations.

Only increasing productivity can save living standards, but that requires both novel energy sources and technological unemployment, both of which are disruptive, and hence will be deferred.

In light of recent big currency moves the crux of what is before us may hinge on "relevant value" rather than inflation or deflation. It is possible that we have been mislead into arguing and debating the wrong issue and should be focused on how our assets compare in value to those of other people around the world. In what is often referred to as the "end game" or the time the global economy will be forced into resetting, I believe the situation will focus on issues of currency and debt valuations.
These "debt valuations" will include both government and private obligations. If someone is caught holding a worthless currency or is owed money that is washed away or not "properly repaid" they will suffer greatly. This means some people and countries will be big losers as value and wealth shifts to the "flavor of the day" driven by demand or searching for a safe haven. The article below explores the concept of why the value of things you own and control are more important than whether we have inflation or deflation.

Roubini's 2008 paper with Alpert and Hackett was on the cutting edge. Now, with this column, Roubini is again leading the pack. For the world saving glut has not been caused by just a little of this and just a little of that. Something systemic has been driving down world interest rates for the past 25 years or so. What is it?

An international currency war is the best answer yet by any leading economist. So with this column Roubini is ahead of nearly all economists, perhaps including even Larry Summers.

However, the international currency war is just a special case. More generally, the expansion of global trade and finance has given rise to an international thrift race. For instance, Japan's thrift has included not just QE but also a much higher consumption tax. And the EU's thrift has included not just QE but also severe fiscal austerity.

So the international thrift race caused the world saving glut, the glut (and not some mysterious Minskyite trait of human nature) made finance crazy, and a crazed financial system went over the cliff.

And if we don't know what happened to us, surely, it will happen again and again.

There is too much Ph.D. economic theory and too little commercial experience at the leadership of our Federal Reserve. Dr. Bernanke is doing his own "apologetics" tour by means of his blog. But, he never gets around to explaining why there was not one, but multiple rounds of QE, even though it didn't appear to be doing anything but distort capital markets. Mario Draghi is cut from the same intellectual cloth, with both he and Bernanke having current Fed Vice Chairman Stanley Fischer as their Ph.D. thesis advisor. Modest increases in interest rates, avoiding a completely flat or inverted yield curve, like the kind that then Chairman Bernanke engineered in 2006 - 2007, would indeed strengthen the dollar, providing consumers with the equivalent of a well-deserved tax cut.

When the dollar printing started (QE) dollar was expected to depreciate but didn't as many commentators have pointed; now with the withdrawal the expectation that it would depreciate is a similar denouement. Well, the time has come to evaluate why would the world keep buying the treasury bills as safe assets.

Quantitative easing (QE) is a fancy term for price control. In its present usage it sets the price of government bonds, one of the worlds largest assets, near zero. This lowers yields on bonds and forces capital to seek other investments such as equity to create a bubble. For the past hundred years, history teaches that government control of resources is not as efficient as free markets marshaling resources. The failure of the Soviet Union and prolonging the Great Depression in the U.S. are prime examples. QE implies that it is a new way to get something for nothing. The cost is hidden in lower growth, less jobs, lower yields on investment and greater costs to our children.

Funny, I thought that the ECB, BOJ and other central banks are simply responding to the QE of the FED, which at the end of the day is exactly a push to reduce the value of the dollar vs the other currnecies. I don't think that the americans are joining the currency war, they started it.

Nouriel suggests that:
“The world would be better off if most governments (and I gather by most he mainly means trade surplus countries like Germany, and perhaps China) pursued policies that boosted growth through domestic demand, rather than beggar-thy-neighbor export measures.”

Perhaps most macro-economists would agree that a demand policy has implications for currency, and trade. Germans, being tied up in a fixed-exchange rate regime inside the Eurozone, have seen a shift of aggregate demand originating from increased net exports. Of course, Nouriel acknowledges this and states:
“But the euro weakness triggered by quantitative easing has further boosted Germany’s current-account surplus, which was already a whopping 8% of GDP last year.”

Thus, on the top of this rightward shift in aggregate demand, we are supposed to get more of a shift by stimulating consumption , investment, or government expenditures. However, any additional German investment would be adding to the problem of German extraordinary competitiveness and its lower relative unit labour costs, arising from both higher productivity and lower real wages, shifting the country’s lower cost structure even lower, and make Germany even more competitive.

What about boosting aggregate demand by stimulating consumption and/ or increased government expenditures to increase imports. For instance, by asking Germans to buy Fords or Chevy es instead of Mercedes, BMW, Audi, or Porsche! Assuming we are able to persuade them to do so that would introduce appreciation pressures with regard to the value of the US dollar vis-à-vis euro when dollar is already too strong. Furthermore, a rise in German import means a downward shift in its aggregate demand, with implications for forward exchange markets that would be self-defeating, but let’s abstract from the law of one prices, and related issues. Assuming that Mario Draghi would not allow the euro to depreciate that would mean the proposed aggregate demand policies would be inducing an artificial rise in German cost structure, which some may think would be a good thing, except that the whole dynamics would result in a slowdown in German potential growth (induced by a leftward shift in aggregate demand and a rise in the supply side cost structure,) permeating stagnationary forces to reverberate throughout the Eurozone. What about instead of buying American cars, we encourage Germans to go and spend some quality time in Greece and enjoy some extended holidays in a tour. This policy would only become effective if the downward shift in German aggregate demand, would excrete downward pressure on euro.

In brief, to get some positive outcome from any demand scenario in the current zero-bound, imbalanced conditions one does need to calibrate the parameters of various representative models in ways that very quickly they would exhibit high-cost instability. The only realistic solution is to go back to basics and let the markets find the right solutions. There would be some transitory high costs but , policy makers can mitigate the adverse impacts by some short-term labour market policy measures.

Fortunately, the technological changes of recent years can help to shorten the transition period to normal, but for this to happen the markets must be allowed to work. We always preach about the wisdom of the invisible hand, yet when push comes to shove we get cold feet. We need the services of the Walrasian auctioneer to let us sort out all the distortions introduced into the price mechanism, and let the markets to discover the right relative prices. Sooner or later the market solutions will inevitably exert themselves and in such times they will charge very high fines for all irresponsible policy actions of the recent years.

Gamesmith94134: The Dollar Joins the Currency Wars
Did we not start the currency war already by using liquidity and its monopoly to create inflation on the neighbors that we can buy? By establish the TTIP and TTP that took the world by its horns to entitle America to the underwriter of all commodities and equity? Now, they took the leverage to thwart off their inflation and level their interest rate to invest in America? Perhaps, I agree with Mr. Nouriel Roubini that “The world would be better off if most governments pursued policies that boosted growth through domestic demand, rather than beggar-thy-neighbor export measures.”; but I disagree on the adequate depreciation of dollar is solely on the zero sum solution, because it was not how dollar rose above all currencies from its 3% growth, while India and China are up 7% and theirs depreciated. Perhaps, it was not quality, but quantity easing that cut our interest rate to ground zero and cut their inflation and interest rate too. Some may reason of the most favorite nations or the corporate sovereign that made them did it; but I would blame on the leverage it has developed favoritism on dollar. It is how they depreciated theirs to invest on our 3% growth economy is bloating the dollar in reverse the leveraging on their currencies.
While our DJ rose to 18,000 and equity grew over 140% in market size from 2008, we spent trillions on loans and bonds to make it attractive and liquidity gave excellent returns on both. Now, the QE is gone; and the cut their reserves because of dollars. It means investors will stick to America like leeches because they did not buy the equivalent in dollar and they need dollar to repay us; or they will suffer like Russia or Venezuela by selling their cheaper. It is how they depreciated theirs. Perhaps, US will thrive at 3% growth by the end of the year; but it will be costly to sustain the dividends or return at the adequate level. The way I see more of the corporate are cutting their expenses and labor cost by shrinking the development or splitting themselves into smaller sizes; and layoff from Wal-Mart or IBM may not be the plumbing problems but clotting up within the Congressional circuitry. So, the elephant in the room is the trade policy but the leverage we created; demolishing the most-favorite-nations or imposing tariff trigger the retardation. It is the leverage used on Beggar-they neighbor; and they are putting America on now. I don’t think the debate on how the IT person earning six figures is quitting rent (40% of his gross earning) in San Francisco; or cities is on the edge of bankruptcy that only happens in China. But it certainly gives us another look on the 2% marginal inflation as the Fed intended, after the price of a burger on McDonald if the lowest wages is raised. Is 15 dollar per hour appropriate on living wages? Or do I complain of the 9 trillion loans and bonds gave foreigners a good head-start? These must be contemplated in the sustainable government.
Perhaps, the only solution is to raise the interest rate by the FED can reclaim the quality control and the quantity easing is ended. With such, it gives the breathing room on the pensioners and currency manipulators a sign, which we are going to balance the books without manipulating ours; and depreciation is plausible and deflation may not be stop. Then, everyone should make a better use of their money instead of making the equity market like a casino.
Again, I must raise the essence of those transcontinental transfers that a universal monetary policy will prohibit them from repeating the beggar-thy-neighbors and everyone is accountable for responsible investment and protection; that we must demand insurance like 1% on every assigned the continental transfer to enter in each zones like ASEAN, North America, OAS, Africa Union, and Eurasia economic Union. Perhaps, it may not be a game like casino that bet on the interest rate or currency exchange differentials if one must gain 2% to a full return. I would suggest the World Bank and development bank under the control of the Zones to facilitate the funds to insure on the exchange rate and appropriate loans during the difficult times.
As in the exchange rate by IMF and other, we can establish the quarterly evaluation on performance of each currencies have accomplished and how each currencies should be scrutinize by its peers within the zones that we can eliminate the unnecessary propagandas in isolation or formation of cartel to monopolize. Otherwise, we can never have a global trade policy that is free from manipulation and monopoly. I have seen more transparency and political problems in TTP and TTIP; and they performed less successfully in the past with more resistance. I think the old GATT must be rewritten in a universal platform by World Trade Organization; and we can go back to the rules of the best quality that is sustainable, instead of quantity that invasion prevails like a casino.
Beggar-thy-neighbor is prohibited by the universal reckoning, let the New World Order begins.
May the Buddha bless you?

Actually, me thinks the professor has the cause and effect a little mirrored, that the headline should more correctly be "Currency Wars JOIN the Dollar"(economy).
IOW, central bankers galore are doing 'something' about the deflationary effects of the combination of global debt saturation and IMF-induced austerity, the result being problematic for the broad domestic economic production.
As a result, the effect ON the dollar of 'relative' appreciation (by the capital markets) will quite naturally drive the policy options selected by the CB-US in attempting to keep OUR national economy out of those negative trends ..... that which could happen without, minimally, stability-inducing policy measures.
With the G-20 and others trying to export their domestic economic tranquility, the problem with these observations by the professor is a lack of any clear prescription for the truly underlying cause for that 'spreading' global economic stagnation, the GIGANTIC amount of public and private debt that is preventing MONEY coming available to fund economic growth. This, BECAUSE, noting Martin Wolf and Adair Turner's cogent observations, we ain't going anywhere with debt-based money.
For the Money System Common.
The Kettle Pond Institute

To characterize this as "currency wars" is a vast exaggeration. The dollar fell nearly 40% against a basket in 2004/5 (it actually bottomed in early 2008) and the general public hardly noticed. Certainly none of the chattering classes were shouting about currency wars. There was no talk then from conservatives about dollar "debasement." They've also been silent of late on this topic as the dollar has appreciated despite claiming for years that QE was going to destroy the dollar, cause huge inflation, etc. all of which have proved completely incorrect.

The U.S. for instance, didn't print a few trillion dollars to cause hurt to any other global economy, it did so because it was deemed in the national interest to stimulate the economy.

There was no intent to harm any other economy, rather, the only intent was to save the dehydrated American economy -- and therein lies the clue that leads us to conclude it was not a form of economic warfare.

However, had this been done in a time of relative economic calm in order to cause harm to competitor nation economies, then the case could be made that the U.S. started a 'currency war' for its own benefit.

Everyone would understand the U.S. getting censured at some later point in time.

The reason we have low aggregate demand is that half of the world's wealth is now tied up in the hands of the 1% and that money is doing nothing for money velocity -- which means that its only efficiency is to make other rich people, richer. That is all that money is doing. Nothing more, and nothing less.

In short, it is money (wealth) that has been for all intents and purposes, removed from the mainstream economy. A separate economy for the 1% if you like.

That is the fundamental economic problem, and economists must stop trying to fix the symptoms and begin to work on solving the fundamental economic problems.

I can say it another way, all of the mountains of debt the government has created, very quickly wound up in the hands of the 1% -- after a short money velocity burst through the economy -- which is exactly why the economy responded and then plateaued.

Until the next crisis.

At which point, the 1% will again become the beneficiaries of new massive government debt caused by the printing of trillions of dollars.

Two more recessions and the 'money will fail' as the 1% will own all of it, just as happened in ancient Egypt. The Pharoah and the royal family wound up with all of the money, and not even one citizen or resident had a deben to their name.

Now that *growth* is topping out in the developed nations, we need to begin to switch our emphasis towards *money velocity* where each dollar passes through the economy many hundreds of times over adding its full value to each person it touches -- and the government reaping the taxation thereof in appropriate circumstances -- instead of merely handing all the newly printed money over to the 1%, after a cursory trip through the economy.

The transmission consequences of emergency actions to stem the haemorrhage within - 5 years of unprecedented Central Bank Balance Sheet expansion - seems to now shift action to the currency markets, after reversing the Asset Price collapses that initiated the haemorrhage in 2008. Fractional reserve banking perhaps needs much higher reserves and capital, to cope with the enhancement in volatility that will follow - given the heightened state of confrontational possibilities in an already fragile world. The G20 established a Financial Stability Board (FSB) as an early warning platform to attenuate systemic financial risks. The potential for upheavals perhaps best scoped and dimensioned under their aegis - and upward revisions of capital ratios triggered should yardsticks established to control volatility reach alarm levels.

It would be more accurate to say that America started the currency wars when it opted to pursue unconventional monetary policies, and encouraged others to do likewise, in response to the 2008 crash, all despite multiple warnings from abroad. The world really needs a steadier hand to guide monetary policy; the lightweight academics that staff the Fed just can't do the job.

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